Today I’d like to present you with some pros and cons of Reverse mortgage. I’m no financial advisor, but I have been selling luxury Toronto homes for years, I’ve met many people that used or wanted to use this financial product. One of the home loans available is called "reverse mortgage". Using this product, you can get the money according to the value of your house.
This financial product may be also called "Equity Release", as in England, where it is quite popular. The target group for this financial product is clients aged 60 or more, who could use some more money, but the monthly payment schedule is not suitable for them.
 

• The principle

 
Basically, the client using the reverse mortgage is entitled to cash according to the price of his property, with interest growing in time. You don't have to worry about paying the money back, because it can wait only after you sell the home. This means that in the meanwhile you or your spouse can still live there, until you leave for a retirement home or until your death comes. Usually, you can gain between $20,000 and $500,000 up to 30% of your home equity. If you are older than 70, the maximum is set to 40% of the home value. In the next part of this article, we will examine some pluses and minuses of the reverse mortgage.
 

• Pluses

 
Duty-free credit. You don't have to pay any monthly amount. The ownership of your home does not change. If you still have a mortgage on your home or any other loans, this may be a perfect form of paying them up, while freeing yourself from the monthly payment obligation. If you don't want the debt to get any bigger, you may pay the interest little by little. If the client decides to mortgage another house in his ownership (partly or fully), it is possible. If you decide to leave this programme, you may do so at any time. No fees are charged, on the condition that you have been participating for at least 3 years.
The interest rate declines with time. Even in the case when the loan is higher than the home value, the bank is not allowed to foreclosure. The client doesn't have to be afraid of having to pay more than the well-deserved price of his home, even in cases when the home value gets smaller for whatever reason.
 

• Minuses

 
In order to get the reverse mortgage, you have to pay about $1,300. After just a short time, the debt value may even match your home price. In case the interest rate equals 10% and the initial loan was $50,000, the debt amount doubles once in every 7 years. In specific numbers, the loan will equal $100,000 after 7 years and $200,000 after only 14 years. Even if you are lucky and the home price is growing gradually, the debt is growing too and finally there might be nothing left.
 
If we recap what we said before, the equity release is a suitable financial product for people who need to get some money in a considerably short time, who own some property and don't have sufficient regular salary. One of the specifics of this kind of loan is that as long as you stay in your home, its title still remains in your name. Even people who don't have sufficient income or have other loans may use the reverse mortgage. One of the risks of the reverse mortgage may be that if used by a considerably young client who is not able or willing to pay off the interest rate regularly, it may become very costly, as the amount borrowed increases with time and growing interests, leaving the borrower with very little or no house value left. If you feel this might be the right way of raising cash for you, your financial planner will be able to tell you more details.